Choice Institutional Equities has retained its 'Buy' rating on Dalmia Bharat (DALBHARA) with an unchanged target price of Rs 2,405 per share, citing capacity expansion, a supportive pricing environment, disciplined capital allocation and synergies from the JP Assets acquisition.

"We retain our BUY rating on DALBHARA with an unchanged target price of Rs 2,405/share," the brokerage said.

The brokerage said it remains constructive on the stock based on "Ambitious capacity expansion to 110-130 MTPA (from 54.7 MTPA currently), with 12 MTPA scheduled for commissioning by Q3FY28, strengthening its pan-India footprint", "A supportive pricing environment, which should help offset cost inflation", "Disciplined capital allocation, supporting healthy returns" and the "JP Assets acquisition, which presents a strong synergy-led value-creation opportunity through scale, operational efficiency and market expansion."

Choice Institutional expects cost pressures to remain manageable. "Despite cost headwind forecast of Rs 100-120/t in Q2FY27E, we believe a favourable pricing environment should largely offset the impact." It added that "continued cost-optimisation initiatives, coupled with a higher share of renewable energy, are expected to cut the impact of rising power cost and aid profitability."

Accordingly, the brokerage expects Dalmia Bharat to deliver "FY27E EBITDA/t of Rs 972/t, reflecting the company's resilient margin profile despite near-term cost pressure."

Choice Institutional projects the company to deliver "an EBITDA CAGR of 9.0% over FY26-29E, driven by volume growth of 4.0%/6.0%/8.0% and realisation growth of 3.5%/1.5%/1.0% over FY27E-FY29E, respectively." Its target price of Rs 2,405 is based on "an EV/CE valuation framework, assigning a multiple of 1.6x for FY28E."

On the quarterly performance, the brokerage noted that Dalmia Bharat reported Q1FY27 consolidated revenue of Rs 3,890 crore and EBITDA of Rs 805 crore, compared with its estimates of Rs 3,728.7 crore and Rs 705 crore, respectively. Total sales volume stood at 7.6 million tonnes against its estimate of 7.5 million tonnes.

The report highlighted that "Realisation/t came in at Rs 5,118/t (-1.5% YoY and 6.1% QoQ)," while "Total cost/t came in at Rs 4,059/t ( 3.2% YoY and 6.9% QoQ)." As a result, "EBITDA/t came in at Rs 1,059/t (vs CIE est. of Rs 941/t)."

On the industry outlook, the brokerage said, "Infrastructure-led demand outlook remains constructive," while adding that "Demand recovery likely after seasonal slowdown" is expected to be supported by PMAY execution, infrastructure spending and improving urban housing activity. It also said, "Pricing environment remains favourable," though "Cost inflation remains the key monitorable."

On operations, the brokerage said, "Volume growth outperformed industry" with sales volumes rising 9% year-on-year to 7.6 million tonnes. It added that "Premiumisation strategy continues to deliver," with the premium product mix reaching an all-time high of 25%, while "Trade contribution remained healthy at 66%" and "Blended cement share remained above 80%."

On costs, the report said, "Raw material inflation remained elevated," while "Fuel cost pressure largely contained" due to inventory management and operational initiatives. However, "Fixed cost inflation weighed on profitability" because of annual wage revisions and higher packaging costs.

On expansion, the brokerage highlighted that "Fast integration demonstrates execution capability," with commercial dispatches from Chunar commencing within 22 days of acquisition. It added that "Capacity expansion remains firmly on track," with installed cement capacity expected to increase from 54.7 million tonnes to 66.7 million tonnes by Q3FY28. It also said, "Brownfield projects should support superior capital efficiency," while noting that "Net Debt/EBITDA remains at 1.47x, leaving sufficient headroom for ongoing capex."

Choice Institutional flagged "Possible fluctuation in pet coke and coal prices, as well as supply disruption due to geopolitical events" as the key risks to its investment thesis.